The Commission today has voted to close its
investigations into the potential acquisition of P&O Princess Cruises
("Princess") by either Royal Caribbean Cruise Lines ("Royal Caribbean") or
Carnival Corporation ("Carnival"). We respectfully dissent because we
believe that there is a substantial likelihood that either merger will
significantly lessen competition in violation of the Clayton and FTC Acts,
and that this risk must be assessed in the context of a full
administrative trial on the merits. Within the limits of confidentiality
considerations, this statement explains our views.

Cruising is the Relevant Market in
Which to Assess Competitive Harm

Some of the parties in this case have
argued that cruises are merely a small fraction of a much larger vacation
market. However, we agree with the majority that the relevant product
market in which to assess competitive harm is cruises marketed to North
American consumers. First, this market definition comports with what we
believe to be consumers' common sense view of cruises as a market unto
themselves. Second, it is borne out by the evidence. For example, the
evidence shows that the cruise companies view each other as one another's
major competitors and that they closely monitor and at times react to one
another's prices and capacity announcements. Pursuant to the Merger
Guidelines, a market is the smallest set of potentially competing
products that a hypothetical monopolist could exploit.(1)
As the majority notes in its statement: "we have concluded that a
hypothetical monopolist [in cruises] could likely raise average prices
profitably." We agree.

High Concentration Levels Raise a
Presumption of Anticompetitiveness the Parties Fail to Rebut

The North American cruise market is highly
concentrated, and the significant increase in this concentration resulting
from either proposed transaction raises the presumption that both mergers
would result in anticompetitive effects.(2)
A market is considered highly concentrated when the Herfindahl-Hirschman
Index, or HHI, exceeds 1800.(3) In such a
case, unless entry is easy, "it will be presumed" that a merger that
significantly increases concentration is "likely to create or enhance
market power or facilitate its exercise" in violation of the antitrust
laws.(4) If Royal Caribbean succeeds in its
offer for Princess, the post-merger HHI will increase from a
highly-concentrated 2,800-plus to over 3,700. If Carnival is successful in
its bid for Princess, the HHI likewise will rise to close to 3800. Either
merged entity would control nearly half of North American cruise capacity.

In order to overcome the presumption of
anticompetitiveness raised by unquestionably high concentration levels,
the parties are obliged to demonstrate that the cruise market is
characterized by a set of practices and circumstances rendering the
unilateral or coordinated exercise of market power unlikely. In our
opinion, they have failed to do so.

The Combined Company CouldEngage in Anticompetitive Unilateral Behavior

The majority dismisses the prospect of
unilateral effects based upon conclusions that neither of the mergers
involves uniquely close competitors and that competition sufficient to
constrain unilateral action will still exist following either merger. We
disagree.

We believe it is likely that the merged
firm, with a near 50 percent market share, would have sufficient strength
to engage in anticompetitive unilateral behavior. Rather than taking the
form of across-the-board price increases or unilateral reductions in
capacity, a unilateral exercise of market power could be targeted toward
various niche markets where the merger consolidates the two best
alternatives in various cruise products.(5)
For example, Carnival's Holland America and Princess are the
longest-established competitors in the Alaska trade with a very high
combined share of that niche market. These two firms have certain
advantages over Royal Carribean and other firms that also offers Alaska
cruises, in terms of land facilities, port access, and park permits.

The Proposed Transactions Would Facilitate Coordination on Price
and Capacity

Although we believe that unilateral effects
may result from the proposed mergers, our primary concerns in this matter
arise from the potential for coordinated interaction among the remaining
market participants with regard to both pricing and capacity issues. In
this post-merger market, the merged firm, with nearly half the market, and
its next largest competitor will control over 80 percent of the market,
and the top three will control over 95 percent.

While many elements play into the pricing
decisions made throughout the cruise sales cycle, a relevant factor in
many decisions is pricing by competing cruise lines. Both documentary and
testimonial evidence indicate that the parties expend a substantial amount
of effort toward monitoring each other's prices, and have at times
adjusted their prices in response to price changes by cruise competitors.
Travel agents, who book the vast majority of cruises, also facilitate
price competition by communicating competing offers to rival cruise lines.

With only two major competitors remaining
after either of the mergers, existing price competition likely will be
threatened. To the extent "a rising tide lifts all boats," less vigorous
competition will benefit the top firms and all of the remaining
competitors. While it is axiomatic that more explicit forms of price
fixing are rendered significantly easier when a market is reduced to only
two major players,(6) the coordination in
this post-merger market is likely to be tacit and subtle.(7)
The market leader can set slightly higher prices than it might have
otherwise, and the other firms, diligently gathering information on a host
of prices, will have every incentive to follow.(8)
Admittedly, pricing in this industry is complex, but the parties are
sophisticated enough to have mastered this arcane art, and, if moved to do
so, they likely would be able to exploit the reduction in competition to
the detriment of consumers.(9) The weight
of the evidence reflects that the parties monitor and at times react to
each other's prices, and we believe that the likelihood that price
coordination may indeed be facilitated in a post-merger market is an
inquiry that, at the very least, warrants full explication at trial.

Either of the proposed transactions also
would create the incentive to collectively reduce the rate of industry
capacity growth. Until September, 2001,(10)
the relatively new cruise market had been growing at an average rate of
approximately 8 percent annually for several years. Huge ships, now
commonplace in the market, require roughly 18 to 24 months each to build.
Their cost approximates $400,000,000 each, and orders are placed well in
advance. Based upon firm orders already placed, the industry growth trend
seems preordained to continue for the short term.

However, the proposed transactions are
likely to disrupt this growth. The evidence reflects an industry-wide
desire to limit the rate of capacity growth and ease downward price
pressures. With an established market leader, and ship orders and
deployments well-known in the industry, the dominant competitor could
easily set a new slower pace that its nearest competitors could be
expected to follow. The relevant question, then, is whether industry
capacity growth will continue at the same pace that it would have absent
the merger, or instead will be slower over the near or long term. We
believe that the latter is the more likely course.(11)

The Evidence Fails to Establish
that Entry Would be Timely, Likely, and Sufficient

Based upon staff's findings during the
course of the investigation, it is far from certain that entry or
expansion post-merger would occur on a scale sufficient to offset the
presumption of anticompetitiveness raised by the high concentration levels
present in the industry. While the evidence indicates that entry may
indeed be possible, barriers to de novo entry are high due to
various factors, some of the most significant of which are the required
economies of scale, the cost and time required to build new ships, the
difficulty of repositioning existing ships as "premium" cruise ships,
marketing and distribution requirements, and problems obtaining permits or
port access in certain locations.

Similarly, while entry in the form of
expansion or redeployment by existing fringe firms may be possible,
significant questions remain as to whether it would be timely, likely or
sufficient.(12) With only a small number
of ships in their inventories and business models often based upon niche
offerings (e.g., combined cruise and theme park products), fringe
entrants may be less interested in expansion opportunities, or less able
to take advantage of them.(13)
Additionally, fringe firms might find it in their best interest to follow
price increases and reduced capacity expansion set by the market leader.

Claimed Efficiencies are Vague and
Do Not Outweigh Potential Competitive Harm

Finally, claimed efficiencies simply have
not been stated with the requisite amount of
specificity to weigh them against potential anticompetitive harm.(14)
Even assuming all the cost-savings claimed by the parties were
merger-specific and certain, those efficiencies still would not likely
outweigh the presumptive anticompetitive effects resulting from either
proposed transaction.

Conclusion

In summary, staff have performed an
excellent inquiry into the range and depth of potential anticompetitive
effects arising from the two proposed transactions. This was a difficult
decision, guided as always by our clearest judgment as to what best
protects the interests of American consumers. While each proposed deal is
challenging and exceedingly close, we believe that on balance neither
party has sufficiently rebutted the presumption of anticompetitive harm
that our Merger Guidelines prescribe in concentrated markets such as this
one.

Accordingly, we respectfully dissent
because we believe that either contemplated transaction is likely to
violate the antitrust laws and should be enjoined pending full trial on
the merits.

2. This is at best a
four to three merger with a small fringe of competitors. Some commentators
have argued that it approaches three to two, because the fourth player,
Norwegian Cruise Lines, with only 12 percent of the market, is presently
lagging behind the other three in terms of growth. Such characterizations
are beside the point. The concentration levels speak for themselves.

5. A clear market leader
may also have the power to disadvantage competitors -- with the net impact
of increasing prices to consumers -- by various means including, but not
necessarily limited to, forcing key travel agents to accept exclusive
contracts and pressuring port authorities to deal with its competitors on
unfavorable terms.

6. "When the leading
four firms control 40 percent or more of the total market, oligopolistic
behavior becomes likely." F.M. Scherer & David Ross, Industrial Market
Structure & Economic Performance 82 (3d ed. 1990). Here, the top two firms
would control over 80 percent of the market post-merger, and the top three
would control over 95 percent.

8. Some argue that the
cost of adding each additional passenger is very low and that the on-board
sales of incidentals - such as drinks and shore excursions - give cruise
lines the overwhelming incentive to fill their ships at any fare (e.g.,
when a ship has excess capacity close to the sail date). Further, it has
been argued that this "incentive to sail full" drives fares rather than
the competition among rival cruise lines. Though we acknowledge that
cruise lines do possess the economic incentive to fill their ships fully
with passengers, we are not persuaded that competition is irrelevant to
cruise markets. Indeed, while some segment of customers (e.g.,
those who buy close to the sail date) could still pay low fares regardless
of the amount of competition in the market because of the incentive to
sail full, a larger share may suffer fare increases from the elimination
of competition.

9. Cruise lines may be
able to effectively price discriminate among their customers through use
of yield management systems. Such discrimination might take the form of
both self-selection (some consumers choose to book when prices are high)
and active segmentation by the cruise lines of customers based upon a host
of characteristics. Moreover, few consumers either attempt to delay
booking in an effort to obtain a lower price or follow subsequent prices
in an effort to cancel existing bookings and re-book at a lower price.
Cruise lines also try to "fence-in" customers who have booked by ensuring
that subsequent promotional offerings are conditioned in such manner that
booked passengers cannot cancel and re-book. Given these tendencies and
tools, tactical price increases are possible.

10. Growth in the
cruising industry, as in other industries, has been negatively impacted
due to the terrorist attacks of September 11, 2001.

11. Indeed, the very
pendency of the contemplated transactions already may have slowed industry
capacity growth. Options to build new ships that likely would have been
exercised may have been permitted to lapse during the pendency of the
proposed transactions.

13. Additionally, to
the extent those parties who argue that pricing is complex and thus
relatively opaque to competitors in this industry are correct, fringe
competitors may not be able to readily identify opportunities for entry or
expansion.

14. This conclusion is
especially true with respect to Carnival. Due to the hostile nature of the
proposed transaction, Carnival has not had the benefit of performing any
due diligence with respect to its hoped-for efficiencies.